CH-19-20 Managing Personal Communications: Direct Marketing and Personal Selling – Marketing Management: A South Asian Perspective : Chapter Notes

This Document Contains Chapters 19 to 20 Chapter 19 Managing Personal Communications: Direct Marketing and Personal Selling LEARNING OBJECTIVES In this chapter, we will address the following questions: How can companies integrate direct marketing for competitive advantage? How can companies do effective interactive marketing? How can marketers best take advantage of the power of word of mouth? What decisions do companies face in designing and managing a sales force? How can salespeople improve their selling, negotiating, and relationship marketing skills? SUMMARY Direct marketing is an interactive marketing system that uses one or more media to effect a measurable response or transaction at any location. Direct marketing, especially electronic marketing, is showing explosive growth. Direct marketers plan campaigns by deciding on objectives, target markets and prospects, offers, and prices. Next they test and establish measures to determine the campaign’s success. Major channels for direct marketing include face-to-face selling, direct mail, catalog marketing, telemarketing, interactive TV, kiosks, Web sites, and mobile devices. Interactive marketing provides marketers with opportunities for much greater interaction and individualization through well-designed and executed Web sites, search ads, display ads, and emails. Mobile marketing is another growing form of interactive marketing that relies on text messages, software apps, and ads. Word-of-mouth marketing finds ways to engage customers so they choose to talk with others about products, services, and brands. Increasingly, word-of-mouth is being driven by social media in the form of online communities and forums, blogs, and social networks such as Facebook, Twitter, and YouTube. Two notable forms of word-of-mouth marketing are buzz marketing, which seeks to get people talking about a brand by ensuring that a product or service or how it is marketed is out of the ordinary, and viral marketing, which encourages people to exchange online information related to a product or service. Salespeople serve as a company’s link to its customers. The sales rep is the company to many of its customers, and it is the rep who brings back to the company much-needed information about the customer. Designing the sales force requires choosing objectives, strategy, structure, size, and compensation. Objectives may include prospecting, targeting, communicating, selling, servicing, information gathering, and allocating. Determining strategy requires choosing the most effective mix of selling approaches. Choosing the sales-force structure entails dividing territories by geography, product, or market (or some combination of these). To estimate how large the sales force needs to be, the firm estimates the total workload and how many sales hours (and hence salespeople) will be needed. Compensating the sales force entails determining what types of salaries, commissions, bonuses, expense accounts, and benefits to give, and how much weight customer satisfaction should have in determining total compensation. There are five steps in managing the sales force: (1) recruiting and selecting sales representatives; (2) training the representatives in sales techniques and in the company’s products, policies, and customer-satisfaction orientation; (3) supervising the sales force and helping reps to use their time efficiently; (4) motivating the sales force and balancing quotas, monetary rewards, and supplementary motivators; (5) evaluating individual and group sales performance. Effective salespeople are trained in the methods of analysis and customer management, as well as the art of sales professionalism. No single approach works best in all circumstances, but most trainers agree that selling is a six-step process: prospecting and qualifying customers, pre-approach, presentation and demonstration, overcoming objections, closing, and follow-up and maintenance. OPENING THOUGHT Students should be very familiar with the marketing systems described in this chapter, especially Internet shopping. The challenge to the instructor in this chapter is ensuring that the students understand that Internet marketing is just one of the many different avenues available to marketers trying to reach their target markets. Students may be predisposed to believe that “all” marketing or the “future” of marketing is via electronic channels. The instructor should encourage in-class discussions on this position and he/she is encouraged to take the “defensive” position to help the students understand the many levels of business and consumer marketing. For those students who are not currently salespeople, or are not interested in a career in sales, their opinions, and views of salesmanship (derived from personal experiences, TV, and other forms of communication) can be an interesting source of discussion. Some students will believe that “all salesmen lie.” The section in this chapter concerning the sales force may present a challenge to the instructor in disproving or refuting these common assumptions about salespeople long enough to communicate the material. The instructor is encouraged to spend sufficient time on this section to show/demonstrate to the students the role that the sales force plays in the overall marketing communications mix for many firms. Inviting sales managers and their salespeople to the class as guest speakers will help communicate the professionalism and difficulty of this profession. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS At this point in the semester-long project, students who have decided to market their product/service through direct market channels should submit their proposals. All other groups must decide at this point if they will use a direct sales force and if so to outline the specifics (including financials) for this option. Market demassification has resulted in an ever-increasing number of market niches and the use of direct marketing to reach these niches is growing. In small groups (five students maximum), have students collect as many direct marketing advertising pieces of information sent to them over the course of a month during the semester. After collecting the catalogs, credit card offers, e-mail notices, and other forms, students are to evaluate the effectiveness of these techniques in causing them to purchase. Which one(s) of these direct marketing techniques do they feel is the most successful (caused a purchase) or least effective (caused irritation to them), and why? What can astute marketers do to increase the effectiveness of their direct marketing? Marketing Plan: Many marketers have to consider sales force management in their marketing plans. The high cost of maintaining a direct sales force and the need to establish multiple channels of distribution have led some companies to include online, mail, and telephone sales for some of their personal selling efforts. Get students to plan a sales strategy for their product or service. After reviewing their decisions about other marketing mix activities, get them to answer these questions about personal selling: Is a direct sales force needed or can sales be achieved through agents and outside representatives? On whom should selling activities be focused? What kinds of sales objectives should be set for sales personnel? What role should Internet marketing play in the product or service launch? What training will sales representatives need to sell the product or service? Get students to summarize their answers in a written marketing plan or type them into the Marketing Mix, Marketing Organization, and Sales Forecast sections of Marketing Plan Pro. ASSIGNMENTS The direct market offering, according to the text, consists of five elements—the product, offer, medium, distribution method, and creative strategy. Have the students collect direct marketing offerings (sent to them, their families, and close friends). On a scale of 1–5 (1 being does not work, 5 being works very well), rank each of these offerings in terms of these five elements. What is the group’s consensus as to which offers work the best (and worse) and why? Most managers agree that to increase the motivation of their salespeople they have to reinforce the intrinsic and extrinsic rewards offered. However, this is not a universally accepted opinion. Many managers use one type of reward almost exclusively in their motivation techniques. Students should interview three sales managers and ask them if they emphasize intrinsic or extrinsic rewards in their salesperson’s motivation? Which method do they personally feel is the most effective and why? Which method do they wish they did a better job in and why? From this research, can the students form a casual relationship between the industry, competitive nature of the industry, and the motivation techniques used? In a research paper, students are to comb appropriate Internet sites, and documents, illustrating the power of the “buzz” and “viral marketing” about products and/or services. Which ones do they think are effective and why? Students are to assume the role of a salesperson at an Apple premium reseller store, which employs 50 salespeople, but currently does not use any customer relationship software. Students are to “sell” the “buyer” on the advantages of buying Apple products from a premium reseller by demonstrating situation, problem, implication, and needpayoff questions. Students should reverse roles at appropriate time intervals so that each student has the opportunity to “play” buyer and seller. (Get students to first research on premium resellers like Nubox – nubox.com.sg/ and epicentre – epicentreasia.com/sg/). Questions for the class: How effective did you find the SPIN method to be in your “selling situation?” How difficult is it to frame questions in terms of situation, problem, implication, and need-payoff? Do you believe that the SPIN method works? Infomercials can be found selling almost everything possible! As a group, have the students videotape three different infomercials and critically evaluate the effectiveness of these commercials in light of the five elements of the direct market offering. Which one(s) do the students believe is the most (least) effective and why? END-OF-CHAPTER SUPPORT MARKETING DEBATE—Are Great Salespeople Born or Made? One difference of opinion in sales concerns the potential impact of training versus selection in developing an effective sales force. Some observers maintain that the best salespeople are “born” and are effective due to their personalities and all the interpersonal skills they have developed over a lifetime. Others contend that the application of leading-edge sales techniques can make virtually anyone a sales star. Take a position: ‘The key to developing an effective sales force is selection’ versus ‘The key to developing an effective sales force is training’. Pro: Selection is definitely the number one consideration in choosing salespeople in today's business. There is an old adage: “hire for personality, train for skill.” Salespeople occupy a role in the marketing mix called the “boundary spanner” that is they are the link between the company and the customer. In these roles, the salesperson is subjected to enormous amount stress to please both the customer and be fair to the company. In addition, salespeople must endure absence from family, travel difficulties, and time management issues. Selecting a person based upon their ability to handle these stresses, and have the personality skills of likability, resourcefulness, listening, and problem handling/decision-making/solution providing included can only be accomplished by selecting the right person from the start. In addition, salespeople must communicate trust, be trustworthy, ethical, and honest because so much of their dealing with customers/clients depends upon these characteristics. One cannot be expected to “train” for honesty, nor can one be expected to train a person in his/her ethical behavior. These are traits formed from birth and can only be found during the selection process. Con: This is an old position, perhaps true when salespeople had only one function—to sell and the selling process consisted mainly of convincing clients/customers of their products by the primary use of personality, persistence, and patience. Today, the role of the salesperson is much more complex and complicated. Selling skills today, involve problem identification, listening skills, and a host of other “trainable” skill sets, more than they consist of being the “likable fellow” or “best joke teller” of the past. All of the skills needed by successful salespeople can be taught, including persistence and patience. In today’s complicated business environment with salespeople assuming more and more of the role as consultant and account manager, the attributes for success in these roles requires a different combination of skills—skills that can be taught to anyone who is interested enough to learn and become competent in their execution. MARKETING DISCUSSION Pick a company and go to the Web site. How would you evaluate the Web site? How well does it score on the 7Cs of design elements: context, content, community, customization, communication, connection, and commerce? Suggested Response: Student answers will differ depending on their favorite Web sites. I evaluated Amazon's website and found it scores well on the 7Cs: Context is clear with a user-friendly layout, Content is rich and relevant, Community is fostered through reviews and forums, Customization is evident in personalized recommendations, Communication is robust with customer support options, Connection is seamless with easy navigation and integration, and Commerce is streamlined with efficient shopping and checkout processes. Marketing Lesson: FACEBOOK Why is Facebook unique in the world of personal marketing? Suggested Answer: The social networking Web site fulfills people’s desire to communicate and interact with each other and uses that power to help other companies target very specific audiences with personalized messages. Facebook is unique in personal marketing due to its vast user base and sophisticated data analytics, enabling highly targeted advertising based on detailed user demographics, interests, and behaviors. Its platform also facilitates personalized engagement and precise measurement of marketing effectiveness. Is Facebook just a passing fad or is it here to stay? What are the company’s greatest strengths and risks? Suggested Answer: Student answers will vary but good students may cite these facts from the article to support their position regarding Facebook’s legs: “Facebook is the most popular social networking Web site in the world, with over 500 million active users. The site allows users to create personal profiles with information such as their hometowns, work, educational background, favorite things, and religious affiliation. It encourages them to extend their network by adding other users as friends, and many people try to see how many “friends” they can accumulate. Of the 150+ million users in the United States, 29 percent are aged 35–54, while 25 percent are 18–24. Overall, women represent the fastest-growing segment. Facebook also tends to have a more upscale, educated, desirable demographic than competitive social networks, and therefore it charges more for its advertising ads.” The company’s greatest strengths lies in the sheer number of members and active users. Facebook is likely here to stay due to its extensive user base, advanced advertising tools, and continuous innovation. However, its greatest strengths include its vast reach and data capabilities, while major risks involve privacy concerns and regulatory challenges. How can Facebook overcome local rivals in China, Japan, and Korea? Suggested Answer: Student answers and opinions will vary. Facebook may have to adopt a “wait and see” approach as circumventing the Chinese government’s ban on it is near impossible. In the meantime, Facebook should concentrate on designing products that are culturally relevant for each audience. In China, Facebook should continue to tap its popularity with the Chinese software developer community and the glam factor that Chinese consumers associate with it. Facebook can overcome local rivals in China, Japan, and Korea by adapting its platform to meet regional preferences, investing in localized content and partnerships, and navigating regulatory environments with tailored strategies. Understanding and integrating with local cultures will be crucial for gaining market traction. Marketing Lesson: GROUP ONLINE BUYING What are the hurdles to credibility for such group buying online sites? Suggested Answer: Problems such as fraud, fake products, hidden costs and price hikes are arising frequently as group buying becomes popular. The more frequently consumers get “burned” by group buying online sites, the lower the credibility of the overall industry. Hurdles to credibility for group buying online sites include concerns about the legitimacy of deals, product quality, and the reliability of vendors. Additionally, issues with customer service and potential scams can undermine trust and hinder site credibility. What can group buying online sites do to assure customers that their deals are legitimate? Suggested Answer: Group buying Web sites have to become more vigilant regarding the merchants they are dealing with. They have to conduct more research to make sure that deals proposed by merchants have good value for money. They should make sure that the deals are as clear as possible to customers so that customers know what they are going to get. The terms and conditions on these Web sites have to be comprehensive, clear and fair. Lastly, merchants used should be reputable and established, with those who engage in fraudulent activities being reported to authorities. Group buying sites can assure customers of legitimate deals by implementing strict vendor vetting processes, offering transparent deal terms, and providing customer reviews and ratings. Additionally, they should ensure robust customer service and clearly communicate their refund or satisfaction guarantees. What can group buying online sites do to accelerate the purchase of a deal? Suggested Answer: In addition to the points mentioned in answer to question 2, group buying online sites should market the assurance of quality to customers with clear and fair refund and exchange terms and conditions. To accelerate deal purchases, group buying sites can use urgency-driven tactics like limited-time offers, countdown timers, and exclusive discounts. Additionally, simplifying the checkout process and offering easy payment options can boost conversion rates. DETAILED CHAPTER OUTLINE In the face of the Internet revolution, marketing communications today increasingly occur as a kind of personal dialogue between the company and its customers. Companies must ask not only “How should we reach our customers?” but also “How should our customers reach us?” and “How can our customers reach each other?” New technologies have encouraged companies to move from mass communication to more targeted, two-way communications. Consumers now play a much more participatory role in the marketing process. Marketers are trying to figure out the right way to be part of the consumer conversation. Personalizing communications and creating dialogues by saying and doing the right thing to the right person at the right time is critical for marketing effectiveness. DIRECT MARKETING Direct marketing is the use of consumer-direct channels to reach and deliver goods and services to customers without using marketing middlemen. They often seek a measurable response, typically a customer order, through directorder marketing. Direct marketing has been a fast-growing avenue for serving customers. Business marketers are using direct marketing to increase the productivity of their sales forces and to reduce field sales expenses. Sales through traditional direct marketing channels (catalogs, direct mail, and telemarketing) are thus growing rapidly. Direct sales include sales to the consumer market, B2B, and fund-raising by charitable institutions. THE BENEFITS OF DIRECT MARKETING Market demassification has resulted in an ever-increasing number of market niches. Consumers, short of time and tired of traffic and parking headaches, appreciate tollfree phone numbers and Web sites available 24 hours a day, seven days a week, and direct marketers’ commitment to customer service. Many chain stores have dropped slower-moving specialty items, creating an opportunity for direct marketers to promote these items to interested buyers. C) Increased credit card penetration has also fueled direct marketing. The growth of the Internet, email, and mobile phones has made product selection and ordering much simpler. The youth market in Asia seems particularly amenable to direct marketing. B) Sellers benefit as well. They can customize and personalize messages. They can build a continuous relationship with each customer. Direct marketing can be timed to reach prospects at the right moment. Can receive higher readership because it is sent to more interested prospects. Permits the testing of alternative media and messages in a cost-effective approach. Direct marketers can measure responses to their campaigns to decide which one has been more profitable. DIRECT MAIL Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a person. A) Direct marketing is a popular medium because it: Permits target market selectivity Can be personalized Is flexible Allows for early testing and response measurement In constructing an effective direct-mail campaign, direct marketers must decide on their: B) Objectives Most direct marketers aim to receive an order from prospects and judge a campaign’s success by the response rate. A response rate of 2% is considered good. C) Target Markets and Prospects R-F-M formula: Recency, frequency, monetary amount to select customers Points are established for each level of RFM to select the most attractive customers Prospects can also be identified on the basis of age, sex, income, education, previous mail-orders purchases, and occasions Offer Elements The offer strategy has five elements: The product The offer The medium The distribution method Creative strategy Testing Elements One of the great advantages of direct marketing is the ability to test, under real marketplace conditions, different elements of an offer strategy, such as products, product features, copy platform, mailer type, envelope, prices, or mailing lists. Response rates typically understate a campaign’s long-term impact. To better estimate a promotion’s impact, some companies are measuring direct marketing’s impact on: 1) Awareness Intention to buy Word of mouth Measuring Campaign Success: Lifetime Value By adding up the planned campaign costs, the direct marketer can figure out in advance the needed break-even response rate. The direct marketer needs to analyze the main causes of returned merchandise (late shipment, defective merchandise, damage in transit, not as advertised, incorrect order fulfillment). CATALOG MARKETING In catalog marketing, companies may send full-line merchandise catalogs, specialty consumer, and business catalogs. Catalogs are a huge business in some parts of developed Asia like Japan. The success of a catalog business depends on the company’s ability to manage its: Customer lists. Control inventory. Offer quality merchandise so returns are low. 4) Project a distinctive image. Telemarketing Telemarketing is the use of the telephone and call centers to attract prospects, sell to existing customers, and provide service by taking orders and answering questions. Telemarketing helps companies increase revenue, reduce selling costs, and improve customer satisfaction. Companies use calls centers for: 1) Inbound telemarketing 2) Outbound telemarketing Telemarketing has yet to become a major direct marketing tool in Asia for several reasons: it is too difficult to set up in emerging Asian economies with poor telecommunications infrastructure; extensive training is required; there is high staff turnover, as reliable and bright telemarketers are hard to keep given the tight labor market for their services; and there are numerous multicountry complications and associated language problems. PUBLIC AND ETHICAL ISSUES IN DIRECT MARKETING Direct marketers and their customers usually enjoy mutually rewarding relationships. Sometimes the darker side emerges: Irritation Unfairness Deception and Fraud Invasion of privacy INTERACTIVE MARKETING The newest channels for direct marketers are electronic. The Internet provides marketers and consumers with opportunities for much greater interaction and individualization. ADVANTAGES AND DISADVANTAGES OF INTERACTIVE MARKETING The variety of online options means companies can send tailored messages that engage consumers by reflecting their special interests and behavior. The Internet is also highly accountable and its effects can be easily traced by noting how many unique visitors or “UVs” click on a page or ad, how long they spend on it, and where they go afterwards. The Web offers the advantage of contextual placement, buying ads on sites related to the marketer’s offerings. Marketers can also place advertising based on keywords from search engines, to reach people when they’ve actually started the buying process. Using the Web has disadvantages. Marketers may think their ads are more effective than they are if bogus clicks are generated by software-powered Web sites. Advertisers lose some control over what consumers will do with their online messages and activity. Consumers could place a video in undesirable or unseemly places. Many feel that the pros outweigh the cons for Web marketing. INTERACTIVE MARKETING COMMUNICATION OPTIONS A company chooses which forms of interactive marketing will be most cost-effective in achieving communication and sales objectives. Web sites Companies must design Web sites that embody or express their purpose, history, products, and vision and that are attractive on first viewing and interesting enough to encourage repeat visits. Jeffrey Rayport and Bernard Jaworski propose that effective sites feature seven design elements they call the 7Cs (see Figure 19.1). Search Ads A hot growth area in interactive marketing is paid search or pay-per-click ads, which now account for roughly half of all online ad spending. Advertisers pay only if people click on the links, but marketers believe consumers who have already expressed interest by virtue of the search are prime prospects. The cost per click depends on how high the link is ranked and the popularity of the keyword. Average clickthrough is about 2 percent, much more than for comparable online ads. Display Ads Or banner ads are small, rectangular boxes containing text and perhaps a picture that companies pay to place on relevant Web sites. Interstitials are advertisements, often with video or animation, which pop up between changes on a Web site. Another popular vehicle for advertising is podcasts—digital media files created for playback on portable MP3 players, laptops, or PCs. E) Email Email uses only a fraction of the cost of a “d-mail,” or direct mail, campaign. Consumers are besieged by e-mails though, and many employ spam filters. Emails must be timely, targeted, and relevant. Marketing Memo: How to Maximize the Marketing Value of E-mails” Provides some important guidelines for productive email campaigns. Mobile Marketing With mobile phones’ ubiquitous nature and marketers’ ability to personalize messages based on demographics, the appeal of mobile marketing is obvious. A study showed that Asian youths use mobile phones while commuting to kill time. Their favored content on their phones are news updates, entertainment, and music. They perceive the mobile phones as portable, personal, and private; and a cool product to have WORD OF MOUTH Consumers use word of mouth to talk about dozens of brands each day, from media and entertainment products such as movies, TV shows, and publications to food products, travel services, and retail stores. Companies are becoming acutely aware of the power of word of mouth. Word of mouth can be particularly effective for smaller businesses for whom customers may feel a more personal relationship. Social networks in the form of online virtual communities can be a vital resource for companies. Marketers sometimes distinguish paid media from earned or free media. Although different points of view prevail, paid media result from press coverage of company-generated advertising, publicity, or other promotional efforts. Earned media—sometimes called free media—are all the PR benefits a firm receives without having directly paid for anything. SOCIAL MEDIA Social media are a means for consumers to share text, image, audio, and video information with each other and with companies and vice versa. Social media allow marketers to establish a public voice and presence on the Web and reinforce other communication activities. Because of their day-to-day immediacy, they can also encourage companies to stay innovative and relevant. There are three main platforms for social media: (1) online communities and forums, (2) bloggers, and (3) social networks. A) Online Communities and Forums Many are created by consumers or groups of consumers with no commercial interests or company affiliations. Others are sponsored by companies whose members communicate with the company and with each other through postings, instant messaging, and chat discussions about special interests related to the company’s products and brands. These online communities and forums can be a valuable resource for companies and provide multiple functions by both collecting and conveying key information. A key for success for online communities is to create individual and group activities that help form bonds among community members. Information flow in online communities and forums is two-way and can provide companies with useful, hard-to-get customer information and insights. Information flow in online communities and forums is two-way and can provide companies with useful, hard-to-get customer information and insights. B) Blogs Regularly updated online journals or diaries, have become an important outlet for word of mouth. There are millions in existence and they vary widely, some personal for close friends and families, others designed to reach and influence a vast audience. One obvious appeal of blogs is bringing together people with common interests. Corporations are creating their own blogs and carefully monitoring those of others. Blog search engines provide up-to-the-minute analysis of millions of blogs to find out what’s on people’s minds. Popular blogs are creating influential opinion leaders. Social Networks Social networks have become an important force in both business-to-consumer and business-to-business marketing. Major ones include Facebook, LinkedIn, and Twitter. Different networks offer different benefits to firms. LinkedIn which targets career-minded professionals; and Twitter which allows members to network via 140-character messages or “tweets.” Marketers are still learning how to best tap into social networks and their huge, well-defined audiences. Given networks’ non-commercial nature—users are generally there looking to connect with others—attracting attention and persuading are more challenging. Also, given that users generate their own content, ads may find themselves appearing beside inappropriate or even offensive content. Advertising is only one avenue, however. Like any individual, companies can also join the social groups and actively participate. Having a Facebook page has become a virtual prerequisite for many companies. Twitter can benefit even the smallest firm. Using Social Media Social media allows consumers to become engaged with a brand at perhaps a deeper and broader level than ever before. Marketers should do everything they can to encourage willing consumers to engage productively. But as useful as they may be, social media can never become the sole source of marketing communications. Whether a company chooses to engage in social media or not, the Internet will always permit scrutiny, criticism, and even “cheap shots” from consumers and organizations. By using social media and the Web in a constructive, thoughtful way, firms at least have a means to create a strong online presence and better offer credible alternative points-of-view if such events occur. BUZZ AND VIRAL MARKETING A) Buzz marketing generates excitement, creates publicity, and conveys new relevant brand-related information through unexpected or even outrageous means. B) Viral marketing is another form of word of mouth. Companies can help to create buzz. Buzz and viral marketing both try to create a splash in the marketplace to showcase a brand and its noteworthy features. Some believe these influences are driven more by the rules of entertainment than the rules of selling. OPINION LEADERS Communication researchers propose a social-structure view of interpersonal communication. They see society as consisting of cliques, small groups whose members interact frequently. Bridges: people who belong to one clique and are linked to a person in another. The Law of the Few: “Mavens, Connectors, Salesmen.” Concentrate on the “bees”—hyperdevoted customers who live to spread the word. Controversial tactic: Shill marketing or stealth marketing. Marketing Memo: How to Start a Buzz Fire Although many word-of-mouth effects are beyond marketers’ control, certain steps improve the likelihood of starting a positive buzz. Figure 19.3 displays more dos and don’ts. MEASURING THE EFFECTS OF WORD OF MOUTH Marketers are exploring a range of measures to capture word-of-mouth effects. Although 80 percent of word of mouth occurs off-line, many marketers concentrate on online effects given the ease of tracking them. DESIGNING THE SALES FORCE The original and oldest form of direct marketing is the field sales call. Today, most industrial companies rely heavily on a professional sales force to: Locate prospects Develop them into customers Grow the business In addition, many consumer companies use a direct-selling force: insurance agents, stockbrokers, and distributors work for direct-sales organizations. C) Asia accounts for 40 percent of the world’s direct-sales market. Direct-sales companies promote the opportunities for locals, especially in Asia, to start their own new business as sales representatives. Moreover, the personal touch that direct sales can provide may alleviate perceptions by some consumers about large foreign businesses having little emotional impact in their lives. The term sales representative covers a broad range of positions. Six can be distinguished, ranging from the least to the most creative types of selling Deliverer Order taker Missionary Technician Demand creator Solution vendor Sales personnel serve as the company’s personal link to the customers. The sales representative is the company to many of its customers In designing the sales force, the company must develop sales force objectives, strategy, structure, size, and compensation (see Figure 19.2). SALES FORCE OBJECTIVES AND STRATEGY The days when all the sales force would do was “sell, sell, sell” are long gone. Sales reps now need to know how to diagnose a customer’s problem and propose a solution that can help a customer improve profitability. Companies need to define the specific objectives they want their sales force to achieve. The specific allocation scheme depends on the kind of products and customers, but regardless, salespeople will have one or more of the following specific tasks to perform: Prospecting Targeting Communicating Selling Servicing Information gathering Allocating To manage costs, most companies are moving toward the concept of a leveraged sales force. A leveraged sales force is where the sales force focuses on selling the company’s more complex and customized products to large accounts. Low-end selling is done by inside salespeople and Web ordering. Tasks such as lead generation, proposal writing, order fulfillment, and post-sale support are turned over to others. As a result, salespeople handle fewer accounts, but are awarded for key account growth. Companies must deploy sales forces strategically so they call on the right customers at the right time in the right way. Today’s sales representatives act as “account managers” who arrange fruitful contacts between various people in the buying and selling organizations. Selling increasingly calls for teamwork requiring the support of other personnel such as: Top management Technical people Customer service representatives Office staff To maintain a market focus, salespeople should know how to: Analyze sales data Measure market potential Gather market intelligence Develop marketing strategies and plans Marketers believe that sales forces will be more effective in the long run if they understand marketing as well as selling. Too often marketing and sales are in conflict: marketers complain the sales force is not converting leads, and the sales force complains marketing is not generating enough leads (see Figure 19.3). Once the company decides on an approach, it can use a direct or a contractual sales force. A direct (company) sales force consists of full- or part-time paid employees who work exclusively for the company. This sales force includes inside sales personnel who conduct business from the office using the telephone and receive visits from prospective buyers, and field sales personnel who travel and visit customers. A contractual sales force consists of manufacturers’ reps, sales agents, and brokers who are paid a commission based on sales. SALES-FORCE STRUCTURE The sales-force strategy has implications for the sales-force structure. Established companies need to revise their sales-force structure as market and economic conditions change. territorial structure a product or market structure complex structure Marketing Insight: Major Account Management Marketers typically single out major accounts because many major accounts appreciate having a single point of dedicated contact. SALES-FORCE SIZE Sales representatives are one of the company’s most productive and expensive assets. Increasing their number will increase both sales and costs. A) Once the company establishes the number of customers it wants to reach, it can use a workload approach to establish sales-force size. This method consists of the following five steps: Customers are grouped into size classes Desirable call frequencies The number of accounts in each size class is multiplied by the corresponding call frequency The average number of calls per sales rep is determined The number of sales reps needed is determined SALES FORCE COMPENSATION To attract top-quality sales reps, the company has to develop an attractive compensation package. The company must determine the four components of sales-force compensation: The fixed amount The variable amount Expense allowances Benefits Fixed compensation receives more emphasis in jobs with a high ratio of non-selling to selling duties and in jobs where the selling task is technically complex and involves teamwork. Variable compensation receives more emphasis in jobs where sales are cyclical or depend on individual initiative. Fixed and variable compensation give rise to three basic types of compensation plans: Straight salary Straight commission Combination salary and commission Most firms use a combination of salary and commission, though the relative proportion varies widely MANAGING THE SALES FORCE Various policies and procedures guide the firm in recruiting, selecting, training, supervising, motivating, and evaluating sales representatives (see Figure 19.4). RECRUITING AND SELECTING REPRESENTATIVES Central to a successful sales force is the selection of effective representatives. One survey revealed that the top 27 percent of the sales force brought in over 52 percent of the sales. Beyond differences in productivity is the great waste in hiring the wrong people. After management develops its selection criteria, it must recruit. The human resources department solicits names from current sales representatives, uses employment agencies, places job ads, and contacts college students. Selection procedures can vary from a single informal interview to prolonged testing and interviewing. Many companies give sales applicants formal tests. TRAINING AND SUPERVISING SALES REPRESENTATIVES A) Today’s customers expect salespeople to have deep product knowledge, to add ideas to improve the customer’s operations, and to be efficient and reliable. These demands have required companies to make a much higher investment in sales training. B) In Asia, training time and orientation also varies by company. MNCs in China provided longer training (13 days) compared with domestic firms (8 days). Research on sales training for new reps between MNCs and local firms in Malaysia, a multiethnic society with high levels of collectivism and power distance, showed that MNCs tended to be more result-oriented, while local firms tended to be more costfocused in their sales training. Written job descriptions, a key feature of American sales management, are scarcely used in Japan. Mentoring techniques are employed extensively in Japan as a personalized form of training for sales managers posted overseas. Other forms of training include the use of CDs and CD-ROMS, programmed learning, distance learning, and films. SALES REP PRODUCTIVITY Some research has suggested that today’s sales reps are spending too much time selling to smaller, less profitable accounts when they should be focusing more of their efforts on selling to larger, more profitable accounts. Norms for Prospect Calls Left to their own devices, many reps will spend most of their time with current customers, who are known quantities. Reps can depend on them for some business, whereas a prospect might never deliver any business. Some companies rely on a missionary sales force to open new accounts. Using Sales Time Efficiently Studies have shown that the best sales reps are those who manage their time effectively. A) One planning tool is time-and-duty analysis. Companies are constantly seeking ways to improve sales-force productivity. To cut costs, reduce time demands on their outside sales force, and take advantage of computer and telecommunications innovations, many companies have increased the size and responsibilities of their inside sales force. D) There are three types of inside salespeople: Technical support people Sales assistants Telemarketers E) The inside sales force frees the outside reps to spend more time: Selling to major accounts Identifying and converting new major prospects Placing electronic ordering systems in customers’ facilities Obtaining more blanket orders and systems contracts Sales Technology The salesperson today has truly gone electronic. Not only is sales and inventory information transferred much faster, but specific computer-based decision support systems on CDs have been created for sales managers and sales representatives. One of the most valuable electronic tools for the sales rep is the company Web site: As a prospecting tool To help define the firm’s relationship with individual accounts Identify those whose business warrants a personal sales call Provides an introduction to self-identified potential customers Selling over the Internet supports relationship marketing by solving problems that do not require live intervention and thus allows more time to be spent on issues that are best addressed face-to-face. MOTIVATING SALES REPRESENTATIVES The majority of sales representatives require encouragement and special incentives. Most marketers believe that the higher the salesperson’s motivation, the greater the effort and the resulting performance, rewards, and satisfaction, and thus further motivation. Intrinsic vs. Extrinsic Rewards Marketers reinforce intrinsic and extrinsic rewards of all types. One research study found the reward with the highest value was pay, followed by promotion, personal growth, and sense of accomplishment. Least valued were liking and respect, security, and recognition. In other words, salespeople are highly motivated by pay and the chance to get ahead and satisfy their intrinsic needs, and less motivated by compliments and security. Some firms use sales contests to increase sales effort. Sales Quotas Many companies set annual sales quotas, developed from the annual marketing plan, on dollar sales, unit volume, margin, selling effort or activity, or product type. Compensation is often tied to a degree of quota fulfillment. The company first prepares a sales forecast that becomes the basis for planning production, workforce size, and financial requirements. Management then establishes quotas for regions and territories, which typically add up to more than the sales forecast to encourage managers and salespeople to perform at their best. Even if they fail to make their quotas, the company nevertheless may reach its sales forecast. Each area sales manager divides the area’s quota among its reps. Sometimes a rep’s quotas are set high, to spur extra effort, or more modestly, to build confidence. One general view is that a salesperson’s quota should be at least equal to last year’s sales, plus some fraction of the difference between territory sales potential and last year’s sales. The more favorably the salesperson reacts to pressure, the higher the fraction should be. Conventional wisdom is that profits are maximized by sales reps focusing on the more important products and more profitable products. Reps are unlikely to achieve their quotas for established products when the company is launching several new products at the same time. The company will need to expand its sales force for new product launches. Setting sales quotas can create problems. If the company underestimates and the sales reps easily achieve their quotas, it has overpaid them. If it overestimates sales potential, the salespeople will find it very hard to reach their quotas and be frustrated or quit. Another downside is that quotas can drive reps to get as much business as possible—often ignoring the service side of the business. The company gains short-term results at the cost of long-term customer satisfaction. EVALUATING SALES REPRESENTATIVES We have been describing the feed-forward aspects of sales supervision—how management communicates what the sales rep should be doing and motivates them to do it. But good feedforward requires good feedback, which means getting regular information from reps to evaluate performance. Sources of Information The most important source of information about reps is the sales report. A) Additional information comes through: Personal observation Salesperson self-reports Customer letters and complaints Customer surveys Conversations with other sales representatives B) Sales reports are divided between: 1) Activity plans 2) Write-ups or activity results Many companies require representatives to develop an annual territory marketing plan in which they outline their program for developing new accounts and increasing business from existing accounts. Sales reps write up completed activities on call reports. These reports provide raw data from which sales managers can extract key indications of sales performance: Average number of sales calls per salesperson per day Average sales call time per account Average revenue per sales call Average cost per sales call Entertainment cost per sales call Percentage of orders per hundred sales calls Number of new customers per period Number of lost customers per period Sales-force cost as a percentage of total sales Formal Evaluation The sales force’s reports along with other observations supply the raw materials for evaluation. There are several approaches to conducting evaluations. One type of evaluation compares current performance to past performance. An example is shown in Table 19.1. A) Evaluations can also assess the salesperson’s knowledge of: Company Products Customers Competitors Territory Responsibilities Personal characteristics can be rated, such as: 1) General manner 2) Appearance Speech Temperament The sales manager can review any problems in motivation or compliance. PRINCIPLES OF PERSONAL SELLING Effective salespersons have more than instinct; they are trained in methods of analysis and customer management. Today’s companies spend hundreds of millions of dollars each year to train salespeople and transform them from passive order-takers into active order-getters. B) SPIN method: Situation questions Problem questions Implication questions Need-payoff questions The Six Steps (Figure 19.5) A) Prospecting and Qualifying The first step in selling is to identify and qualify prospects More companies are taking responsibility for finding and qualifying leads Leads can be categorized, with “hot” prospects turned over to the field sales force. “Warm” prospects turned over to the telemarketing unit for follow-up Preapproach The salesperson needs to learn as much as possible about the prospect company. The salesperson should set call objectives: to qualify the prospect, gather information, make an immediate sale. Another task is to decide on the best contact approach, which might be a personal visit, a phone call, or a letter. Finally, the salesperson should plan an overall sales strategy for the account. Presentation and Demonstration The salesperson now tells the product “story” to the buyer, following the AIDA formula: Gaining attention Holding interest Arousing desire Obtaining action The salesperson uses FABV: Features Advantages Benefits Value approach Overcoming Objections Customers typically pose objections during the presentation or when asked for the order: Psychological resistance Logical resistance To handle these objections, the salesperson: Maintains a positive approach Asks the buyer to clarify the objection(s) Questions the buyer in a way that the buyer has to answer his or her own objection(s) Denies the validity of the objection(s) Turns the objection(s) into a reason for buying One potential problem is for salespeople to give in too often when customers demand a discount. “Sell the price” versus “sell through price” Received training to recognize value-adding opportunities rather than price cutting opportunities Closing Salespeople need to know how to recognize closing signs from the buyer: Physical actions Statements or comments Questions There are several closing techniques: Ask for the order Recapitulate the points of agreement Offer to help write up the order Ask whether the buyer wants A or B Get the buyer to make minor choices such as color and sizes Indicate what the buyer will lose if the order is not placed now Follow-Up and Maintenance Follow-up and maintenance are necessary if the salesperson wants to ensure customer satisfaction and repeat business. Immediately after the closing, the salesperson should: Cement any details on delivery time, purchase terms, and other matters important to the customer Schedule a follow-up call Develop a maintenance and growth plan for the account NEGOTIATION Marketing is concerned with exchange activities and the manner in which the terms of exchange are established. In routinized exchange, the terms are established by administered programs of pricing and distribution. In negotiated exchange, price and other terms are set via bargaining behavior, in which two or more parties negotiate long-term binding agreements. Language The language of the host country is one of the most difficult challenges for an international salesperson to manage. “Give me a yes or no answer” is a highly damaging demand for most Asians. This is because of their reluctance to displease another with a negative answer and also to save them from the embarrassment of having to admit an inability. Eye Contact In the U.S., salespeople tend to maintain eye contact with their prospects; failure to do so may arouse suspicion. However, maintaining eye contact may be perceived as a sign of aggression in such Asian countries as Japan, South Korea, and Taiwan. Time Americans are monochronic time processors, living by schedules and deadlines. The efficient use of time is reflected in such phrases as “Time is money.” However, in Japan, Thailand, and Korea, casual conversation precedes business matters, given the preference to develop personal ties with strangers before concluding a deal with them. It is thus important to keep adequate time reserves for negotiations. Status and Title Nearly all communication in Japan occurs within an elaborate and vertically organized social structure. Two implications for negotiation arise from this. First, business cards (meishi) are always exchanged and carefully studied when the Japanese meet someone. Those doing business with the Japanese need business cards that explain their corporate designations. Otherwise, the Japanese would not know how to relate to this seemingly isolated individual. Second, buyer-seller relationships tend to work better when both parties are of equivalent rank, age, or seniority. Decision-Making Style Japanese decision making demands that group members achieve agreement through consensus. Nemawashi holds that group commitment is stronger if the group is tightly bound. Thus, negotiations must occur within an atmosphere of friendliness and cooperation in Japan. In Thailand, different ethnic groups conduct business differently. Often educational level and degree of international exposure will affect Thai negotiation attitudes and styles. Fluid Contracts The establishment of personal relationships, bringing together two groups with common interests, allows the Japanese to view contracts as personal agreements that should be changed when conditions change. A change will be reciprocated in future, but contracts are seen as fluid. Asians typically ask for concessions at the end of negotiations, just when you think that the process is over and agreement has been reached. Summing it up, where one party may view the goal of negotiation as being a signed contract, the other may use it as a process to establish a relationship. Mediation and Informal Communication Mediation is another important aspect of negotiation in Asia. The use of mediators and informal discussions avoids potential embarrassment that may result in loss of face. RELATIONSHIP MARKETING The principles of personal selling and negotiation we have described are largely transaction oriented because their purpose is to close a specific sale. But in many cases the company is not seeking an immediate sale, but rather to build a long-term supplier-customer relationship. Today’s customers are large and often global. They prefer suppliers who can sell and deliver a coordinated set of products and services to many locations; who can quickly solve problems that arise in different locations; and who can work closely with customer teams to improve products and processes. Relationship marketing is particularly important when dealing with Asian customers. Client-salesperson relationships are cultivated to establish trust and respect. Forming and maintaining trustworthy relationships thus form an integral aspect of the Asian cultural make-up. Marketing Insight: Culture and Relationship Marketing Trompenaars and Hampden-Turner argue that Asian cultures tend to possess six characteristics that impact their commercial behavior: Particularism Communitarianism Diffuseness Ascribed status Outer direction Synchronous time Chapter 20 Introducing New Market Offerings LEARNING OBJECTIVES In this chapter we will address the following questions: What challenges does a company face in developing new products and services? What organizational structures and processes do managers use to manage newproduct development? What are the main stages in developing new products and services? What is the best way to manage the new-product development process? What factors affect the rate of diffusion and consumer adoption of newly launched products and services? SUMMARY Once a company has segmented the market, chosen its target customer groups and identified their needs, and determined its desired market positioning, it is ready to develop and launch appropriate new products and services. Marketing should participate with other departments in every stage of new-product development. Successful new-product development requires the company to establish an effective organization for managing the development process. Companies can choose to use product managers, new-product managers, new-product committees, new-product departments, or new-product venture teams. Increasingly, companies are adopting cross-functional teams, connecting to individuals and organizations outside the company, and developing multiple product concepts. Eight stages take place in the new-product development process: idea generation, screening, concept development and testing, marketing strategy development, business analysis, product development, market testing, and commercialization. At each stage, the company must determine whether the idea should be dropped or moved to the next stage. The consumer-adoption process is the process by which customers learn about new products, try them, and adopt or reject them. Today many marketers are targeting heavy users and early adopters of new products because both groups can be reached by specific media and tend to be opinion leaders. The consumer-adoption process is influenced by many factors beyond the marketer’s control, including consumers’ and organizations’ willingness to try new products, personal influences, and the characteristics of the new product or innovation. OPENING THOUGHT Students will be challenged in understanding the new-product process if they are new to the science of marketing. Students, like the general population, believe that new products are just “thought-up” and created! Therefore, the first barrier to effective learning in this chapter is to outline and detail the new-product process. An instructor can use examples from his/her experience in the creation of new products or he/she can set up as an inclass or outside of class experiment, the “creation” of a new product by the class or in groups. Secondly, the consumer-adoption process may be new to some students who have not had any consumer buying behavior classes. This section of the chapter allows for the most discussion: Are you a heavy user? Or do you know someone who is an “early adopter”—someone who must have the latest gimmick? When involving the students in the examination(s) of their own lives or the lives of family/friends, the stages of the adoption process can begin to play a more meaningful role. Finally, personal influence—the effect that another person has on our willingness to try products should be a concept familiar to the students. The instructor’s challenge here is to show the students (or make them aware if they have not been aware) that personal influence is a powerful determinant of behavior. The marketer must be cognizant of personal influence in designing a marketing campaign. At this point, class discussion can focus on the ethics of designing marketing campaigns to reach influential opinionmakers to promote products and/or services. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS At this point in the semester-long Marketing Plan project, there should be a brief write-up by the students as to the consumer-adoption process for their new product. How will the consumer learn about their new product and how quickly will they adopt it? Will the product be targeted to the heavy users and early adopters first, then early and late majorities? What is their estimated time for full adoption? Identify three new products (introduced to the consumer and/or business markets within the last year) and classify them as either: a new-to-the-world product, a new product line, an addition to the existing product line, an improvement and/or revision of existing product(s), or a repositioning of an existing item. For each product selected, identify what challenges you think the developing company faced in marketing this product. What rate of diffusion and consumer adoption do you foresee for these new products? Marketing Plan: Product strategy is based on the choices companies make as they select target segments and create a distinctive positioning for their brand and products. With this foundation, a marketer is ready to plan for new product development and management. Get students to consider new product or service options. Answers to the following questions will help them narrow the options: What specific needs of the targeted customer segments should be satisfied by a second product or service? Working with other students, generate at least four new ideas for new products or services, and indicate the criteria used to screen these ideas. Develop the most promising idea into a product or service concept and explain how to test this concept. Assuming the most promising idea tested well, develop a marketing strategy for introducing the new product or service, including: (1) description of the target market(s), (2) positioning, (3) objectives for sales, profit, and market share for first year, (4) channel strategy, and (5) marketing budget for first year. Get students to summarize their answers in a written marketing plan or type them into the Marketing Mix, Marketing Organization, and Sales Forecast sections of Marketing Plan Pro. ASSIGNMENTS Use the class and conduct a brainstorming session using the tips from the Marketing Memo entitled “How to Run a Successful Brainstorming Session.” Use the students as the “group” and appoint one as a moderator. Using the suggestions in the Marketing Memo entitled “Seven Ways to Draw New Ideas from Your Customers,” set up a project in which students (individually or in groups) observe consumers using products such as automobiles, use of the Internet, use of the “mall,” etc. to see if they can come up with some ideas from their observations. New products fail at a disturbing rate. Recent studies put the rate at 95 percent in the United States and 90 percent in Europe. In small groups (five students suggested as the maximum), find three products that have “failed” (been introduced then withdrawn from the market by the company) and suggest the cause or causes of these product failures. A listing of some of the reasons why new products fail can be found in the chapter. In the opening vignette of the chapter, Nintendo introduced the world of video games to new segments of customers. In a small group, find at least three other companies that have introduced numerous new products into the global marketplace over the last two years. What characteristics do all of these companies share? What has been their success rate? Apple’s iPod® and iPhone® has been a successful new product introduction for the company. It has been suggested that the introduction of iPhone and iPod was targeted at the “innovators”—technology enthusiasts and “early adopters.” Question: Can the iPhone and iPod continue its rate of diffusion throughout the adoption curve and reach the early majority and late majority users? Or will it become stuck appealing to just those two first segments? In your answer, carefully review the sales, pricing, and products recently introduced by competitors of Apple. The consumer-adoption process is similar to the product life cycle in its stages of introduction, growth, expansion, and decline. For example, by the time a product reaches the late majority, the product is also entering the latter stages of the product life cycle and price and promotion become increasingly important to maintaining sales. Overlaying these two graphs, comment on what their similarity means for marketers. Why do you think that the length of the adoption process and the product life cycle stages are similar? What does this similarity say about consumer buying practices? What lessons must marketers understand, in terms of new product launches, about these two? In the section entitled, Adopting Creativity Techniques, the chapter defines some techniques for stimulating creativity in individuals and groups. In small groups, and using the techniques described, create at least three “new ideas” for products and services. Your group can use “lateral marketing” techniques as well. Share these new ideas with others in the class and conduct an informal poll of which ideas have the most merit for future development. Companies find good ideas by researching competitors’ products and services. For this exercise, select a consumer product category (shampoos, soft drinks, snack foods, etc.), purchasing many of the available items in this category. Suggest some incremental innovations that you would like to see for the products/category chosen. For example, would you prefer a different form of bottling for shampoos? A different flavor for soft drinks—beer-flavored cola, for example. Do any of the items in your research have glaring weaknesses as in its cleaning properties, smell, or taste that a company can improve upon? Why is competitive research so important for companies to undertake? END-OF-CHAPTER SUPPORT MARKETING DEBATE—Whom Should You Target With New Products? Some new-products experts maintain that getting close to customers through intensive research is the only way to develop successful new products. Other experts disagree and maintain that customers cannot possibly provide useful feedback on what they do not know and cannot provide insights that will lead to breakthrough products. Take a position: ‘Consumer research is critical to new-product development’ versus ‘Consumer research may not be all that helpful in new-product development’. Pro: Simply put, launching new products costs companies a lot of money. Some estimates are in the 100’s of millions of dollars for consumer products, even more for certain industrial and governmental ones. With so much money at stake, companies must find out what their consumers/customers prefer and the features they would buy. Remember, the adoption process for new items goes through 1) an individual’s readiness to try new products; 2) the effect of personal influence on/for the new product; 3) the differing rates of adoption (personal comfort zones); 4) and the differences in some organizations to try new products. Companies are not at liberty to “buy” because the product is “new.” The features and benefits of the product must show the company how it can save time and/or save money. Con: Marketers today are spending too much of their time and money on creating “cookiecutter” products that are boring and do not answer consumer needs. The science of consumer understanding is elementary at best. How else can you explain a new product failure rate of over 90% in the U.S. and 95% in Europe. We kid ourselves by thinking that we “understand” the consumer—all we understand is what might happen in a controlled environment. The marketplace is far from “controlled” and as such, we lose our perspectives. It would be far better for marketers to use their energies to create new and exciting groundbreaking products rather than playing it safe. MARKETING DISCUSSION Think about the last new product you bought. How do you think its success will be affected by the five characteristics of an innovation: relative advantage, compatibility, complexity, divisibility, and communicability? Suggested Response: Student answers will differ depending upon their last new product chosen but all answers should address each of these five characteristics. The last new product I bought was a smart home device. Its success is likely influenced by its relative advantage (improved convenience), compatibility (integrates with existing home systems), and divisibility (can be used in parts of the home). Its complexity and communicability (ease of understanding and explaining its features) also play a role in adoption and overall success. Marketing Lesson: APPLE Apple’s product launches over the past decade have been monumental. What makes the company so good at innovation? Is anyone comparable to Apple in this respect? Suggested Answer: Apple’s innovative design skills for one and the simultaneous launch of iTunes to go with their new products. Student answers to the second question will vary depending upon their opinion of Apple products. Apple excels in innovation due to its strong focus on design, user experience, and ecosystem integration, combined with substantial investment in R&D. While companies like Google and Tesla are notable competitors, Apple's cohesive approach and brand loyalty set it apart. How important was the iPod to Apple’s current success? Discuss the significance of the iPhone and iPad launches to Apple’s new product development strategy. Suggested Answer: Short answer: Very. The Apple iPod changed the way people listen to and use music. Apple reached its impressive market domination through a combination of shrewd product innovation and clever marketing. It defined a broad access point for its target market—music lovers who wanted their music, whenever and wherever. Besides this enhanced “push” effort, Apple also developed memorable, creative “pull” advertising that helped drive the popularity of the iPod and the launch of the iPad in 2010. The iPod was crucial to Apple’s success, as it established the company as a leader in consumer electronics and paved the way for future innovations. The launches of the iPhone and iPad were pivotal, as they expanded Apple’s product ecosystem, driving new revenue streams and reinforcing its strategy of integrating hardware, software, and services. How should Apple plan its new product launch into Asia given the threat from legitimate competitors as well as the gray market and clones? Suggested Answer: Apple should meet demand by projecting stock requirements and ensuring sufficient stock when the new product is launched. Ideally, Apple should carry out synchronized worldwide launches. Apple should also work with authorities in Asia to go after retailers and vendors who are selling counterfeit Apple products. Apple should tailor its product launches in Asia by emphasizing its unique value propositions, such as quality and ecosystem integration, while implementing robust legal protections and combating gray market and clone products through strict enforcement and strategic partnerships. What is next for Apple? Should it continue to move away from computers and toward more new handheld devices? Suggested Answer: Student answers will vary depending upon their view of the PLC and the value computers add to their lives. Good students will note/argue/defend that the PC is / can be in the mature or decline stage of the PLC and as such Apple should move towards newer products just beginning their “PLC.” Apple should balance its focus on new handheld devices with continued innovation in computing, leveraging its strengths in both areas to drive growth. Expanding into emerging technologies like augmented reality and artificial intelligence can also shape its future direction and maintain market leadership. Marketing Lesson: HTC Compare and contrast Apple’s and HTC’s approaches to product offering. Suggested Answer: Apple’s iPhones look the same, HTC tries to make handsets for every taste. Some of its handsets have slide-on keyboards and others have touch screens. While Apple has its own online stores, HTC allows telecommunication carriers to pick which music and applications to offer. However, in contrast to Apple’s fun and creative image, HTC appears to be quite serious even though its technology is good. Apple’s approach centers on a tightly integrated ecosystem with premium, meticulously designed products and a controlled user experience. In contrast, HTC focuses on offering a wide range of innovative, often highly customizable devices, emphasizing cutting-edge technology and features while competing in various market segments. Do you think HTC is innovative or imitative? Why? Suggested Answer: Student answers will differ as this calls for “opinion” and conjecture. HTC has been innovative with its early adoption of new technologies and unique designs, such as the HTC Vive in VR. However, it has also been criticized for imitating competitors' features and designs in some of its smartphone models, which can dilute its innovation reputation. What can HTC do to become more creative than Apple? Suggested Answer: HTC should focus on creative marketing efforts on the internet, where it can better educate users about what its devices can do and its latest innovations. HTC can focus on pioneering unique features and technologies that differentiate it from Apple, such as advanced VR/AR experiences or breakthrough hardware innovations. Investing in bold, unconventional designs and forging exclusive partnerships can also help set it apart creatively. Do you think HTC faces more competition from Apple or from other mobile phone companies such as Samsung and LG? Suggested Answer: HTC’s main competitors are Apple and Samsung, both of which have spent hefty budgets on marketing campaigns to build and maintain brand equity. HTC is often seen as innovative due to its early adoption of new technologies and unique features like the HTC Vive for virtual reality. However, it has also faced criticism for imitating successful elements from competitors, such as design and functionality, which can impact its perceived originality. HTC can foster a culture of innovation by investing in cutting-edge R&D and encouraging bold, out-of-the-box thinking among its teams. Additionally, they can collaborate with creative industries and integrate user feedback to develop unique, trendsetting products. DETAILED CHAPTER OUTLINE New-product development shapes the company’s future. Improved or replacement products and services can maintain or build sales; new-to-the-world products and services can transform industries and companies and change lives. But the low success rate of new products and services points to the many challenges they face. Companies are doing more than just talking about innovation. They are challenging industry norms and past conventions to develop new products and services that delight and engage consumers. Marketers play a key role in new-product development by identifying and evaluating ideas and working with R&D and other areas in every stage of development. NEW PRODUCT OPTIONS MAKE OR BUY A company can add new products through acquisition or development. A) The acquisition route can take three forms: The company can buy other companies. It can acquire patents from other companies. It can buy a license or franchise from another company. But firms can successfully make only so many acquisitions. At some point, they need organic growth—the development of new products from within. B) The product development route can take two forms: It can develop new products in its own laboratories called organic growth. It can contract with independent researchers or new-product development firms to develop new products. TYPES OF NEW PRODUCTS New products range from new-to-the-world products that create an entirely new market to minor improvements or revisions of existing products. Most new-product activity is devoted to improving existing products. Less than 10 percent of all new products are truly innovative and new to the world. These products involve the greatest cost and risk because they are new to both the company and the marketplace. Companies typically must create a strong R&D and marketing partnership to pull off a radical innovation. High-tech firms in telecommunications, computers, consumer electronics, biotech, and software seek radical innovation. CHALLENGES IN NEW PRODUCT DEVELOPMENT New-product introductions have accelerated, and in retailing, consumer goods, electronics, autos, and other industries, the time required to bring a product to market is now halved. THE INNOVATIVE IMPERATIVE In an economy of rapid change, continuous innovation is a necessity. Highly innovative firms are able to identify and quickly seize new market opportunities. Innovative firms create a positive attitude toward innovation and risk taking, routinize the innovation process, practice teamwork, and allow their people to experiment and even fail. Companies that fail to develop new products put themselves at risk. NEW PRODUCT SUCCESS Most established companies focus on incremental innovation. entering new markets by tweaking products for new customers, using variations on a core product to stay one step ahead of the market, and creating interim solutions for industry-wide problems. Newer companies create disruptive technologies. Established companies can be slow to react or invest in these disruptive technologies because they threaten their investment. Incumbent firms must carefully monitor the preferences of both customers and noncustomers over time and uncover evolving, difficult-to-articulate customer needs. NEW PRODUCT FAILURE A) New products continue to fail at a disturbing rate: Around 95 percent in the United States Around 90 percent in Europe New products can fail for many reasons: Shortage of important ideas in certain areas Fragmented markets Social and governmental constraints Cost of development Capital shortages Shorter development time 7) Poor launching time Shorter product life cycles Organizational support Table 20.1 summarizes the causes of new-product failure. ORGANIZATIONAL ARRANGEMENTS Many companies today use customer-driven engineering to design new products. New-product development requires senior management to define business domains, product categories, and specific criteria. One company established the following acceptance criteria: The product can be introduced within five years. The product has a market potential of at least $50 million and a 15 percent growth rate. The product would provide at least 30 percent return on sales and 40 percent on investment. The product would achieve technical or market leadership. BUDGETING FOR NEW-PRODUCT DEVELOPMENT R&D outcomes are so uncertain that it is difficult to use normal investment criteria when budgeting for new-product development. Some companies solve this problem by financing as many projects as possible, hoping to achieve a few winners. Others apply conventional percentage of sales figures. Spend what the competition does. Still other companies decide how many successful new products they need and work backward to estimate the required investment. Table 20.2 shows how a company might calculate the cost of new-product development. ORGANIZING NEW-PRODUCT DEVELOPMENT Companies handle the organizational aspect of new-product development in several ways. Product managers New-product managers High-level management committee New-product department Cross-Functional Teams A venture team is a cross-functional group charged with developing a specific product or business. These “intrapreneurs” are relieved of their other duties and given a budget, a time frame, and a “skunkworks” setting. Skunkworks are informal workplaces, sometimes garages, where intrapreneurial teams attempt to develop new products. Stage-Gate Systems Many top companies use the stage-gate system to divide into stages the innovative process with a gate or checkpoint at the end of each stage. The project leader, working with a cross-functional team, must bring a set of known deliverables to each gate before the project can pass to the next stage. The gatekeepers make one of four decisions: go, kill, hold, or recycle. The stages in the new-product development process are shown in Figure 20.1. Many firms have multiple, parallel sets of projects working through the process, each at a different stage. The process can be depicted as a funnel: a large number of initial new-product ideas and concepts are winnowed down to a few highpotential products that are ultimately launched. But the process is not always linear. Many firms use a spiral development process that recognizes the value of returning to an earlier stage to make improvements before moving forward. MANAGING THE DEVELOPMENT PROCESS: IDEAS GENERATING IDEAS The new product development process starts with the search for ideas. Some marketing experts believe that the greatest opportunities and highest leverage with new products are found by uncovering the best possible set of unmet customer needs or technological innovation. Erich Joachimsthaler’s DIG framework is designed to provide companies with an unbiased view and an outside-in perspective of demand opportunities. It has three parts: The demand landscape The opportunity space The strategic blueprint Marketing Memo: Ten Ways to Great New-Product Ideas Lists the 10 idea generation suggestions to find great new-product ideas, by Robert Cooper in his book, Product Leadership: Creating and Launching Superior New Products. Interacting with Others Encouraged by the open innovation movement, many firms are increasingly going outside the company to tap external sources of new ideas, including customers, scientists, competitors, employees, channel members, and top management. Marketing Insight: P&G’s New Connect-and-Develop Approach to Innovation Relates how P&G’s corporate profits and revenues jumped helped by new products. P&G adapted a “connect and develop” model that emphasizes the pursuit of more externally sourced innovations. Marketing Memo: Seven Ways to Draw New Ideas from Your Customers Lists the seven ways that companies get new ideas from their customers: observe, ask, use customer advisory boards, use Web sites for new ideas, use the community of enthusiasts; encourage challenges or improvements in your product. Technical companies can learn a great deal by studying customers who make the most advance use of the company’s products and who recognize the need for improvements before other customers do. Interacting With Employees Employees can be a source of ideas for improving production, products, and services. For examples on how Japanese businesses derive new ideas from their employees. Marketing Insight: New-Idea Generation in Japanese Companies Japanese companies steeped in rigid hierarchical structures and consensus management systems have employed various methods to stimulate employee creativity for generating new product ideas. Examples are cited. Studying Competitors Companies can find good ideas by researching the products and services of competitors and other companies. They can find out what customers like and dislike about competitors’ products. Adopting Creativity Techniques Internal brainstorming sessions also can be quite effective—if conducted correctly. Marketing Memo: How to Run a Successful Brainstorming Session Here is a sampling of techniques for stimulating creativity in individuals and groups. A) Attribute listing Forced relationships Morphological analysis Reverse assumption analysis New contexts Mind-mapping Increasingly, new product ideas arise from lateral marketing that combines two product concepts or ideas to create a new offering. Using Idea Screening In screening ideas, the company must avoid two types of errors. A DROP-error occurs when the company dismisses a good idea. It is extremely easy to find fault with other people’s ideas (Figure 20.2). The purpose of screening is to drop poor ideas as early as possible. The rationale is that product-development costs rise substantially with each successive development stage. Most companies require new-product ideas to be described on a standard form for a new-product committee’s review. The description states the product idea, the target market, and the competition and roughly estimates market size, product price, development time and costs, manufacturing costs, and rate of return. The surviving ideas can be rated using a weighted-index method like that in Table 20.3. As the idea moves through development, the company will constantly need to revise its estimate of the product’s overall probability of success using the following formula: MANAGING THE DEVELOPMENT PROCESS: CONCEPT TO STRATEGY Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market. A product concept is an elaborated version of the idea expressed in consumer terms. CONCEPT DEVELOPMENT AND TESTING Concept development is a necessary but not sufficient step for new product success. Marketers must also distinguish winning concepts from losers. Concept Development A product idea can be turned into several concepts. A) Questions to ask include: Who will use this product? What primary benefit should this product provide? 3) When will people consume this product? The answers to these questions will form several concepts: Concept 1 Concept 2 Concept 3 Each concept represents a category concept that defines the product’s competition. Figure 20.3(a) uses the two dimensions of cost and preparation time to create a product-positioning map. Next, the product concept has to be turned into a brand concept. The brandpositioning map helps the company to decide how much to charge and how calorific to make its drink. Figure 20.3(b) is a brand-positioning map showing the current positions of three existing brands of instant breakfast drinks (A–C), as seen by consumers. Concept Testing Concept testing involves presenting the product concept to target consumers and getting their reactions. The concepts can be presented symbolically or physically. In the past, creating physical prototypes was costly and time-consuming. Today firms can use rapid prototyping to design products. Companies are also using virtual reality to test product concepts. Concept testing entails presenting consumers with an elaborated version of the concept. After receiving information, researchers measure product dimensions by having consumers respond to the following: Communicability and believability Need level Gap level Perceived value Purchase intention User targets, purchase occasions, purchasing frequency The respondents’ answers indicate whether the concept: Has a broad and strong consumer appeal What products this new product competes against Which consumers are the best targets Conjoint Analysis Consumers’ preferences for alternative product concepts can be measured through conjoint analysis, a method for deriving the utility values that consumers attach to varying levels of a product’s attributes. Respondents are shown different hypothetical offers formed by combining varying levels of the attributes, then asked to rank the various offers. Management can identify the most appealing offer and the estimated market share and profit the company might realize. The marketer now uses a statistical program to derive the consumer’s utility functions for each of the five attributes (see Figure 20.4). Clearly, this consumer sees price and package design as the most important attributes. When preference data are collected from a sufficient sample of target consumers, the data can be used to estimate the market share any specific offer is likely to achieve, given any assumptions about competitive response. The most customer-appealing offer is not always the most profitable offer to make. MARKETING STRATEGY DEVELOPMENT Following a successful concept test, the new-product manager will develop a preliminary strategy plan for introducing the new product into the market. A) The plan consists of three parts: The first part describes the Target market’s size Structure Behavior Planned product’s positioning Sales Market share Profit goals in the first few years The second part outlines Planned price Distribution strategy Marketing budget for the first year The third part describes the Long-run sales and profit goals Marketing-mix strategy over time BUSINESS ANALYSIS After management develops the product concept and marketing strategy, it can evaluate the proposal’s business attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company objectives. If it does, then the concept can move into the development stage. Estimating Total Sales Total estimated sales are the sum of estimated first-time sales, replacement sales, and repeat sales. Sales-estimation methods depend on whether the product is a one-time purchase, an infrequently purchased product, or a frequently purchased product. Infrequently purchased products exhibit replacement cycles dictated by physical wearing out or by obsolescence. Frequently purchased products have product life cycles sales. In estimating sales, the manager’s first task is to estimate first-time purchases of the new product in each period. To estimate replacement sales, management has to research the product’s survival-age distribution. Because replacement sales are difficult to estimate before the product is in use, some manufacturers base the decision to launch a new product solely on the estimate of first-time sales. For a frequently purchased new-product, the seller has to estimate repeat sales as well as first-time sales. Estimating Costs and Profits Costs are estimated by the R&D, manufacturing, marketing, and finance departments. Table 20.4 illustrates a five-year projection of sales, costs, and profits for the instant breakfast drink. Row 1 shows the projected sales revenue over the five-year period. Row 2 shows the cost of goods sold. Row 3 shows the expected gross margin. Row 4 shows anticipated development costs. Row 5 shows the estimated marketing costs over the five-year period. Row 6 shows the allocated overhead to this new product. Row 7, the gross contribution, is found by subtracting the preceding three costs from the gross margin. Row 8, the supplementary contribution. Drag-along income is additional income on other company products resulting from adding this product to the line. Cannibalized income is the reduced income on other company products resulting from adding this product to the line. Row 9 shows the net contribution, which in this case is the same as the gross contribution. Row 10 shows the discounted contribution Finally, Row 11 shows the cumulative discounted cash flow, which is the accumulation of the annual contributions in Row 10. MANAGING THE DEVELOPMENT PROCESS: DEVELOPMENT TO COMMERCIALIZATION The company will determine whether the product idea can translate into a technically and commercially feasible product. PRODUCT DEVELOPMENT The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that the engineers can use. Physical Prototypes The goal of the R&D department is to find a prototype that: Embodies the key attributes described in the product-concept statement. Performs safely under normal use and conditions. Can be produced within the budgeted manufacturing costs. Customer Tests When the prototypes are ready, they must be put through rigorous functional tests and consumer tests. Alpha testing is a name given to testing the product within the company. Beta testing is testing the product with customers. Consumer testing can take several forms: Bringing consumers into the laboratory. Giving them samples to use in their homes. MARKET TESTING After management is satisfied with functional and psychological performance, the product is ready to be branded with a name, logo, and packaging and go into a market test. Some Asian businesses do not undertake market testing, believing that it is costly and might delay the launch of the product. Others feel that they are sufficiently familiar with the market to bypass this stage or fear that competitors might get wind of their new products and imitate them. However, market testing can yield valuable information about buyers, dealers, marketing program effectiveness, and market potential. The main issues are: how much market testing should be done, and what kind(s)? High-risk products—those that create new-product categories or have novel features warrant more market testing than modified products. Consumer-Goods Market Testing A) In testing consumer products, the company seeks to estimate four variables: Trial First repeat Adoption Purchase frequency Here are four major methods of consumer-goods market testing, from the least to most costly: Sales-Wave Research In sales-wave research, consumers who initially try the product at no cost are re-offered the product, or a competitor’s product, at slightly reduced prices. They might be offered the product as many as five times (sales wave) with the company noting how many customers selected the product again and their reported levels of satisfaction. Sales-wave research can also expose consumers to one or more advertising concepts to see the impact of that advertising on repeat purchases. C) Sales-wave research can be: Implemented quickly Conducted with a fair amount of security Carried out without final packaging and advertising It does not indicate what trial rates would be achieved with different sales-promotion incentives. Nor does it indicate the brand’s power to gain distribution and favorable shelf positioning. Simulated Test Marketing Simulated test marketing calls for finding 30 to 40 qualified shoppers and questioning them about brand familiarity and preferences in a specific product category. These people are then invited to a brief screening of both well-known and new commercials or print ads. Consumers receive a small amount of money and are invited into a store where they may buy any items they wish. The company notes how many consumers buy the new brand and competing brands. This provides a measure of the ad’s relative effectiveness against competing ads in stimulating trial. This method gives fairly accurate results on advertising effectiveness and trial rates in a shorter period of time. Controlled Test Marketing The company specifies the number of stores and the geographic locations it wants to test. The research firm delivers the product and controls shelf positioning, the number of facings, displays, point-of-purchase promotions, and pricing. Controlled test marketing allows the company to test the impact of in-store factors and limited advertising on buying behavior. The controlled test market gives no information on how to sell the trade on carrying the new product. This method also exposes the product to competition. Test Markets The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses the cities; the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. The company puts on a full advertising and promotion campaign. The company can also test alternative marketing plans by varying the marketing program in different cities. Management faces several decisions: How many test cities? Which cities? Length of test? What information? What action to take? Despite its benefits, many companies today skip test marketing and rely on faster and more economical testing methods. Business-Goods Market Testing Business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha and beta testing (with vendors). A second common test method for business goods is to introduce the new product at trade shows. New industrial products can be tested in distributor and dealer display rooms. Industrial manufacturers come close to using full test marketing when they give a limited supply of the product to the sales force to sell in a limited number of areas that receive promotion support and printed catalog sheets. COMMERCIALIZATION If the company goes ahead with commercialization, it will face its largest costs to date. The company will need to contract for manufacturers or build or rent a full-scale manufacturing facility. Another major cost is marketing. When (Timing) In commercializing a new product, market-entry timing is critical. The company faces three choices: First entry Parallel entry Late entry The timing decision involves additional considerations: If the new product replaces an older product If the product is seasonal Waiting for a “killer application” to occur Complicating new product launches are “design-arounds”—rival firms’ versions of a firm’s invention that are just different enough to avoid patent infringement and the need to pay royalties. Where (Geographic Strategy) The company must decide whether to launch the new product in a single locality, a region, several regions, the national market, or the international market. Most will develop a planned rollout over time. Small companies will select an attractive city and put on a blitz campaign, then enter other cities one at a time. Large companies will introduce their products into a whole region and then move to the next region. Some companies will launch their products to the national market. With the Web connecting far-flung parts of the globe, competition is more likely to cross national borders. Companies are increasingly rolling out new products simultaneously across the globe, rather than nationally or even regionally. However, masterminding a global launch poses challenges, and a sequential rollout across countries may still be the best option. To Whom (Target-Market Prospects) Within the rollout markets, the company must target its initial distribution and promotion to the best prospect groups. A) These would be: Early adopters Heavy users Opinion leaders And they can be reached at a low cost B) The company should rate the various prospect groups on these characteristics and target the best group. How (Introductory Market Strategy) Because new-product launches often take longer and cost more money than expected, many potentially successful offerings suffer from underfunding. It is important to allocate sufficient time and resources—but also not to overspend— as the new product gains traction in the marketplace. CPS calls for developing a master chart showing the simultaneous and sequential activities that must take place to launch the product. THE CONSUMER-ADOPTION PROCESS Adoption is an individual’s decision to become a regular user of a product followed by the consumer-loyalty process. New-product marketers typically aim at early adopters and use the theory of innovation diffusion and consumer adoption to identify them. STAGES IN THE ADOPTION PROCESS An innovation is any good, service, or idea that is perceived by someone as new. Innovations take time to spread through the social system. A) Innovation diffusion process Adopters of new products have been observed to move through five stages: 1) Awareness 2) Interest Evaluation Trial Adoption The new-product marketer should facilitate movement through these stages. FACTORS INFLUENCING THE ADOPTION PROCESS Marketers recognize the following characteristics of the adoption process: differences in individual readiness to try new products; the effect of personal influence; differing rates of adoption; and differences in organizations’ readiness to try new products. Readiness to Try New Products and Personal Influence In each product area, there are pioneers and early adopters. People can be classified into the adopter categories shown in Figure 20.6: 1) Innovators Early adopters Early majority Late majority Laggards Each group requires a different type of marketing if the firm wants to move its innovation through the full product life cycle. Personal influence is the effect that one person has on another’s attitude or purchase probability. Its significance is greater in some situations and for some individuals than for others. Personal influence is more important in the evaluation stage of the adoption process than in the other stages. It has more influence on late adopters than early adopters. 4) It is also more important in risky situations. Companies often target innovators and early adopters with product rollouts. Characteristics of the Innovation Some products catch on immediately, whereas others take a long time to gain acceptance. Five characteristics influence the rate of adoption of an innovation: Relative advantage—the degree to which the innovation appears superior to existing products. Compatibility—the degree to which the innovation matches the values and experiences of the individuals. Complexity—the degree to which the innovation is relatively difficult to understand or use. Divisibility—the degree to which the innovation can be tried on a limited basis. Communicability—the degree to which the beneficial results of use are observable or describable to others. Other characteristics that influence the rate of adoption are: Costs Risk and uncertainty Scientific credibility Social approval The new-product marketer has to research all these factors and give the key ones maximum attention in designing the new-product and marketing programs. Organizations’ Readiness to Adopt Innovations Adoption is associated with variables in the organization’s environment (community progressiveness, community income), the organization itself (size, profits, and pressure to change), and the administrators (education level, age, and sophistication). Other forces come into play in trying to get a product adopted into organizations that receive the bulk of their funding from the government, such as public schools. A controversial or innovative product can be squelched by negative public opinion. Instructor Manual for Marketing Management: A South Asian Perspective Philip Kotler, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha 9789810687977, 9780132102926